Spending falters

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By CommSec

Commonwealth Bank Business Sales Index

The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – fell slightly in May, driven by weaker spending across Government and Business sectors and the large Retail Store segment.

The Business Sales Indicator fell by 0.1 per cent in May after a similar decline in April and a flat result in March. Sales had previously grown between March 2015 and February 2016.

Annual growth slowed from 4.9 per cent to 4.1 per cent. The more volatile seasonally adjusted BSI fell by 1.6 per cent in May after rising by 1.9 per cent in April.

At a sectoral level, 14 of the 19 industry sectors expanded in trend terms in May, a similar result to April. And sales rose in five of the eight states and territories in May.

What does it all mean?

Perhaps we can put it down to the election. Latest data shows that economy-wide spending has stagnated in the past few months, with weaker spending especially across business and government sectors. Still, it’s important to note that spending lifted in all but five of the 19 industry groups with spending up in the majority of states and territories.

It is probably a case of being alert but not alarmed about the latest spending figures. The jobs data has highlighted similar caution with hiring in the past few months.

What does the data show?

The Commonwealth Bank Business Sales Indicator (BSI) – a measure of economy-wide spending – fell by 0.1 per cent in May after a similar decline in April and broadly flat result in March.

Analysis had been complicated in recent months. There was an extra day in February (leap year) and Easter occurred earlier this year. Easter Sunday occurred on March 27 – the earliest occurrence in eight years.

But it has been clear that economy-wide spending growth had slowed. And that was confirmed with the latest data. Before March, spending had grown for 15 straight months.

The annual growth of spending eased from 4.9 per cent to 4.1 per cent in May. The annual growth rate had held at above-normal levels of between 7.0-7.6 per cent between April and November 2015.

The seasonally-adjusted measure of sales fell by 1.6 per cent in May after a 1.9 per cent gain in April and 0.8 per cent fall in March.

The Commonwealth Bank BSI is obtained by tracking the value of credit and debit card transactions processed through Commonwealth Bank merchant facilities. And in line with the practice of the Bureau of Statistics with its retail trade data, seasonally adjusted and trend estimates of the BSI are obtained by applying statistical software. The seasonally adjusted and trend BSI results permit analysis of the broader underlying trends that may be hidden in the raw data.

Across sectors, only five of the 19 industry sectors fell in trend terms in May: Automobiles & Vehicles; Business Services; Amusement & Entertainment; Retail Stores and Government Services. Spending by government Services fell by 1.5 per cent, the biggest fall in over a year.

One of the strongest gains occurred in Personal Service Providers (includes Dry Cleaners, Hairdressing, Photographic Studios) with spending up 0.6 per cent in trend terms in May, the 45th monthly gain. Spending at Repair Services also rose by 0.6 per cent – the 27th straight monthly gain.

In annual terms in May, six of the 19 industry sectors contracted including: Retail Stores, Airlines, Automobiles & Vehicles and Business Services.

At the other end of the scale, sectors with strongest annual growth in May included: Hotels & Motels (up 14.6 per cent); Miscellaneous Stores (up 10.2 per cent); and Government Services (up 9.0 per cent).

Across states and territories in May sales fell just in Northern Territory (down by 0.8 per cent), Victoria (down by 0.6 per cent) and NSW (down by 0.2 per cent). Of the other states and territories, strongest was South Australia (up 0.5 per cent) followed ACT (up 0.3 per cent), Western Australia and Queensland (both up by 0.2 per cent) and Tasmania (up 0.1 per cent).

In annual terms only Victoria had sales below a year ago (down 2.5 per cent). Strongest growth was in Tasmania (up 10.1 per cent), from ACT (up 8.5 per cent), NSW (up 7.2 per cent), Western Australia (up 6.0 per cent), South Australia (up 5.7 per cent), Northern Territory (up 4.7 per cent) and Queensland (up 4.6 per cent).

What is the importance of the report?

The Commonwealth Bank releases its Business Sales Index around the 20th each month. The data provides a broader perspective of consumer spending. The Business Sales Indicator includes transactions made at traditional retail establishments such as supermarkets, clothing stores and cafes & restaurants and as such is more comparable to the ABS Household Final Consumption Expenditure released on a quarterly basis. The Business Sales Indicator also covers businesses such as airlines, car dealers and utilities such as water and electricity companies as well as motels, business, professional and government services and wholesalers.

What are the implications for interest rates and investors?

The economy may have lost some momentum through the election period. It’s probably fair to say that businesses want a decisive election outcome so that momentum can be quickly restarted.